Consumptive imports irk Gono

Clive Mphambela
RESERVE Bank governor Gideon Gono has said the reduction in GDP growth forecasts from between 9,4% to 5,6% was closely linked to the critical liquidity situation in the country.
He said there was need for a concerted effort to rein in imports and reduce the negative balance-of-payments position draining liquidity from the economy.
Presenting his mid-term monetary policy statement earlier this week, Gono said the liquidity challenges currently dogging the economy could not be solved by the central bank alone, saying stakeholders must understand that liquidity sources were limited and the central bank could not print other countries’ currencies.
Gono said although exports performance had improved, the country’s balance-of-payments position was projected to remain under considerable pressure in 2012.
“While exports are expected to register a 13,2% growth from US$4,49 billion in 2011 to US$5,09 billion in 2012 (or 45% of GDP) on the back of increased gold, diamond and platinum production, as well as increased capacity utilisation realised by the major ferro-alloys producers and better tobbaco exports, the country continues to absorb disproportionately huge imports to bridge attendant supply gaps in the economy,” he said.
The country’s imports grew significantly by 46,5% from US$5,162 billion in 2010 to US$7,562 billion in 2011.
Growing import dependence has gained prominence on the backdrop of low industrial capacity utilisation, which is currently estimated at around 50%.
The country’s import bill is projected to rise further by 8% to US$8,215 billion in 2012, a figure representing 75% of GDP, on the back of drought-induced food imports. This, coupled with net service and income outflows, will culminate in the incurrence of an unsustainable current account deficit projected at US$3,1 billion in 2012, a figure representing 26% of the country’s GDP.
“I am not by any means or by any stretch of imagination suggesting a return of the Zimbabwe dollar. Export earnings are a critical source of liquidity and it is important that whatever we do, we bear that in mind,” Gono said. “There is a misnomer that because we are trading in US dollars, there is no need to earn export earnings.”
He said that diaspora remittances, offshore credit lines, foreign direct investment (FDI) and portfolio investment flows were also important contributors of liquidity and more than the efforts of the central bank alone were required to engender confidence in the economy.
“I was suggesting to my board that Zimbabwe needs a new kind of liquidity, which I can call confidence liquidity, that is liquidity which is aligned to the confidence that is in the economy, either it flows out or it flows in. We need confidence liquidity in the economy and without it export earnings can be made, but will flow out as soon as they come in,” he said.
“Efforts to improve the country’s liquidity conditions should thus place great prominence on improving confidence in the banking sector and any actions that end up undermining that confidence in the banking sector will meet with stiff criticism and brutal opposition from the central bank.”
He said improved confidence was usually accompanied by increased investment inflows, which in turn, supports key productive sectors.
This, he said, would result in improved liquidity conditions which support sustained economic growth.
“In an environment where companies are closing day in day out, and there are no exports but there are huge imports , particularly of consumptive goods, the day of reckoning is not far,” Gono warned.
The central bank chief said the country was projecting imports of about US$8 billion this year and a current account deficit of 26% or US$3,1 billion.
“That is serious and to the extent that 75% of these imports are consumptive spending this should give us some sleepless nights,” he added.
He said the huge import bill comprising mainly consumptive imports was undermining the economy by draining liquidity from the economy.
“Why are we turning ourselves into a licence economy, a briefcase economy, allowing people to import tomatoes, potatoes, undermining our mothers and fathers in Mutoko and Nyanga where we used to get these things,” Gono queried.